A class of Nio shareholders are suing the car manufacturer for allegedly lying about building its own factory in Shanghai as it was gearing up to go public in the U.S. in 2018.
A U.S. judge has ruled that Nio investors can proceed as a class in a lawsuit seeking damages from the car manufacturer as well as its executives and underwriters due to the decline in share price that occurred in March 2019 when Nio canned its Shanghai factory plants. This announcement came as a shock and was made despite Nio asserting that the factory was already “under construction” at the time of its IPO.
While the defendants have denied the allegations, U.S. District Judge Nicholas Garaufis issued an order to certify the class of investors who purchased Nio shares in the September 2018 IPO as well as a class of investors who purchased shares between October 8, 2018 and March 5, 2019.
Read: Nio Wants Fair Treatment In The U.S. To Sell Its EVs
Reuters notes that investors believed Nio’s planned factory in Shanghai would alleviate its reliance on a Chinese state-owned manufacturer that some had viewed as “third tier.” Citing former employees, the lawsuit alleges that construction at the factory never started due to the lack of necessary construction permits. It is also alleged that underwriters including Morgan Stanley and Goldman Sachs did not properly vet the EV maker’s statements.
Nio’s share price fell approximately 30% when it announced that plans for the Shanghai factory had been scrapped in March 2019.
While U.S. District Judge Nicholas Garaufis has said the lawsuit can proceed as a class, Reuters reports that securities class actions like this rarely go to trial and that they typically result in a settlement.
